Fiscal adjustment in periphery countries in the euro zone does not need to be adjusted unless growth slows significantly, the International Monetary Fund said today.
Jörg Decressin, the deputy director of the IMF's research department, said austerity in countries like Portugal has already been less this year than in previous years, while growth is likely to rebound.
These countries are struggling to tame their deficits while coming out of a prolonged recession sparked by a sovereign debt crisis across the currency bloc.
"Only if growth were to disappoint in a major way, would one have to go and revisit this," he said about the austerity targets. "But the pace as a whole strikes us now for this year and next year as appropriate."
The IMF now expects Greece, Italy, Portugal and Spain to all exit recession and start growing from next year. Ireland has already been growing, albeit slowly.
Meanwhile, the IMF trimmed its forecasts for global output for the sixth time since early last year, saying stronger growth in most advanced economies would fail to make up for a more sluggish expansion in the developing world.
Prospects for emerging markets have dimmed somewhat with both structural and cyclical factors at play, the IMF said in its latest snapshot on the health of the global economy.
The US is driving much of the global recovery and US output should pick up further next year - as long as politics do not get in the way, the IMF said, referring to a looming standoff over the nation's $16.7 trillion debt ceiling.
"A failure to promptly raise the debt ceiling, leading to a US selective default, could seriously damage the global economy," the IMF warned in its latest World Economic Outlook, released ahead of its twice-yearly meetings later this week.
"Policymakers have shown their determination to keep the global economy away from the precipice. Aside from new cliff events, a growing worry is a prolonged period of sluggish global growth," the Fund added.
For 2013, the IMF now expects global output to expand just 2.9%, down from its July estimate of 3.1%, making it the slowest year of growth since 2009.
It predicted a modest pickup next year to 3.6%, below its July estimate of 3.8%.
Emerging markets still account for much of global growth, and their economies should expand nearly four times as fast this year as advanced economies. But the heady expansions some enjoyed in recent years may be a thing of the past, the IMF said.
China in particular should slow over the medium term as its economy transitions away from investment to consumption drivers. Markets no longer expect the Chinese government to step in with stimulus if growth dips below 7.5%, the Fund said.
Lower growth in the world's second-largest economy could spill over to others, especially commodity exporters dependent on China's hunger for energy.
The IMF also highlighted the risk of tighter financial conditions as markets prepare for the end of ultra-loose US monetary policy.
Time for Fed to exit from bond-buying programme - IMF
Olivier Blanchard, the IMF's chief economist, said it was time for the US central bank to prepare for an exit from its massive bond-buying programme, but he warned of the possibility of a difficult transition for financial markets.
"The communication problems facing the Federal Reserve are new and delicate," he wrote in a foreword. "It is reasonable to expect some volatility in long rates as Fed policy shifts."
In the US, broad federal government spending cuts earlier this year should shave 2.5% from output in 2013, according to the Fund. But a recovery in property prices should contribute to economic growth of 2.6% next year, barring any more fiscal crises, it said.
The IMF said Japan had experienced an 'impressive' pickup since the government launched a massive stimulus programme to spur the economy out of a prolonged stagnation, boosting output by about 1%. But growth should slow next year as the stimulus recedes and Japan moves ahead with higher consumption taxes, it added.
In Europe, a better mood more than any change in policy lifted core economies such as Germany and France, and even Italy and Spain should edge into positive growth territory next year, the Fund said.
But it added that the euro zone must still address financial fragmentation, improve the health of banks, and move closer to banking union, as the IMF urged in past reports.
Failure to address problems in Europe and the possibility of a surprisingly sharp tightening of financial conditions as the Fed withdraws from its massive bond-buying programme may lead to medium-term global growth of only 3%, the IMF said. That would be well short of the more than 4% growth it said it envisioned.
"Over time, worrisomely high public debt in all major advanced economies and persistent financial fragmentation in the euro area could then trigger new crises," it said.